Ah, hang on, may have worked out my confusion
When it says "dx' is understood to be the number dx' multiplied by the identity operator in the ket space spanned by lx'>"
Doesn't this mean that is is an operator which can be written as a 3x3 matrix of the form:
(dx,0,0)
(0,dx,0)
(0,0,dx)
which...